Chapter 14 Real Estate Closings.

Chapter 14 Real Estate Closings

Objectives After reading this chapter, you should be able to
Review a real estate contract and prepare a closing checklist for both the purchaser and the seller. Review a mortgage loan commitment and prepare a closing checklist for the borrower.

Objectives After reading this chapter, you should be able to
Understand the legal procedures required for the closing of a sale of real property. Understand the legal procedures required for the closing of a mortgage loan.

Introduction Sale closing Loan closing Escrow agent
Consummation of a real estate transaction Loan closing Consummation of a loan secured by a mortgage Escrow agent Usually a title insurance company Safeguards the interests of all parties

The Environment Closing on a residential home can be a long process
Involves a great stress for both the buyer and the seller Residential loan closings are not a high-fee item for law firms Can only be profitable in a high volume

The Environment Commercial transactions are easier
People involved are not strangers to business transactions Substantially more money, risks, and negotiations involved

Anatomy of a Real Estate Closing
File creation Usually referred to a firm as a “transmittal package” from a loan officer Initial closing package Sales contract Lender's loan commitment Law firm opens the file and checks for conflicts of interest

Information gathering Starting point is the closing package Reviewing the real estate contract Main document that sets forth the obligations of the purchaser and the seller Determines the true date of closing Legal description of the property

Reviewing the real estate contract Documents required by the seller and the purchaser at the time of closing Affidavits Corporate resolution Warranty deed Bill of sale for personal property

Reviewing the real estate contract Documents required by the seller and the purchaser at the time of closing Assignment of all warranties Foreign person affidavit Form 1099-B

Reviewing the real estate contract Seller may also be required to provide Termite clearance letters Keys Warranties Assignment of leases and security deposits Assignment of service contracts Estoppel letters from prior lenders and tenants

Checklist: Closing Documents
Title examination Title commitment/policy Survey Hazard insurance Foreign person affidavit Form 1099-B Title affidavit

Checklist: Closing Documents
Hazardous waste affidavit Warranty deed Bill of sale Assignment of warranties Broker indemnity Settlement statement

Contact with Seller, Purchaser, and Broker by the Paralegal
If the seller or the buyer is a business entity, the paralegal should require copies of chartering documents Ordering the title examination Examiner needs Name of the current owner Legal description of the real property Any title information or surveys available

Ordering the survey Surveyor needs Legal description of the property Any previous surveys Correct names of the purchasers Correct name of the lending institution Any special lender requirements for a survey

Ordering hazard and fire insurance Requirements Name of the purchaser Correct address of the property Amount of the loan Name and address of the lender Mortgagee endorsement

Obtaining the termite clearance letter or bond Should be obtained before the closing date Reviewing the title examination Satisfaction of loans and liens

A Paralegal's Review of the Mortgage Loan Commitment
Indicates the mortgage lender's approval of the borrower's loan application and the lender's commitment to the loan amount requested Parties Loan amount Interest rate

Term of loan Repayment terms Prepayment terms Security Appraisal Insurance Mortgagee loss payable clause

Escrow for taxes and insurance Title insurance Survey Compliance with law Financial documents Documents Defaults and late charges

Commitment fee Loan expenses Closing and commitment expiration date Disbursement of loan proceeds Acceptance of a loan commitment Assignability

Checklist: Loan Commitment for a Residential Loan
Title commitment/insurance Survey Hazard insurance Truth-in-lending statement

Checklist: Loan Commitment for a Residential Loan
Borrower's affidavit Note Mortgage Settlement statement

Checklist: Loan Commitment for a Commercial Loan
Title examination and title commitment Survey and surveyor's inspection report Fire insurance Borrower's attorney's opinion Copy of personal property list Copies of all leases Tenant estoppel letters for all leases

Subordination and nondisturbance attornment agreement for all leases Certificate of occupancy for all leases Certified articles of incorporation and bylaws Acme, Inc. Certificate of good standing

Corporate resolution Acme, Inc. Environmental audit Photographs of improvements Federal tax ID number Zoning letter Utility letters

Letter from regional office of Environmental Protection Agency Borrower's affidavit Promissory note Deed to secure debt Assignment of rents and leases

Security agreement UCC financing statement Rental achievement escrow Loan closing statement

Special Provisions in a Construction Loan Commitment
Lender wants the right to Review and approve all preliminary and final plans or specifications Be consulted on and approve any and all changes in such plans or specifications Establish minimum standards for construction

Lender wants the right to: Establish a time schedule for various stages of construction from commencement to completion Receive periodic progress reports Undertake periodic inspections of construction Be supplied with a certificate of the architect as to the satisfactory completion of the work

Lender wants the right to Be supplied with a certificate of the borrower as to the total construction costs for the project Be supplied with a certificate of the borrower stating that all utility lines are completed, connected, and adequate Be supplied with pictures of the project as construction progresses

Lender may require the following Copy of the construction contract Copies of all major subcontracts Copy of the building permit Utility letters Final plans and specifications Architect's contract

Lender may require the following Engineer's contract Cost breakdown Use of a construction supervisor Hazardous waste Leasehold loans

The Closing and Aftermath
All parties are notified of the date, time, and place of the closing Closing proceeds are disbursed through an escrow agent Closing statement “Item of prime interest”

Sequence of events Handle the sale aspects first Seller signs all transfer documents Loan transaction Purchaser signs all loan documents

Closing finished after All documents are signed, witnessed, and notarized Good funds have been verified from the purchaser and the lender All checks are cut and disbursements are made to the parties present at closing

Disbursing, recording, and transmitting final documents Generally, all closing documents should be recorded as soon as possible after closing Including assignments, UCC statements, liens, etc.

Final closeout by the paralegal Original recorded documents are sent to the parties Purchaser receives the warranty deed Lender is entitled to receive the recorded mortgage, assignment of rents, UCC financing statements, etc. Title policy should follow the commitment exactly

Checklist: Real Estate Closing Tasks
File creation Open file Client name Client number Billing information Cross-reference and conflict check

Information gathering Review real estate contract Name of seller Name of purchaser Name of broker Description of real property Date of closing Requirements of seller Requirements of purchaser

Information gathering Prepare closing checklist from review of real estate contract Review loan commitment Name of lender Name of borrower Amount of loan Commitment expiration date Loan closing requirements

Information gathering Prepare a loan closing checklist Order title examination and title policy Description of real property Date when examination is required Name of title company Name of insured Insured amount

Information gathering Order survey Legal description of property Information regarding previous survey Name of purchaser and other names to appear on survey Name of lending institution to appear on survey Flood hazard certification

Information gathering Order survey Other special requirements for survey Date of completion for survey Order hazard and fire insurance Name of insured Proper address of property Amount of insurance

Information gathering Order hazard and fire insurance Proof insurance premium has been paid one year in advance Name of lender for mortgagee clause Date for delivery of insurance policy

Preclosing procedures Review title examination and title policy Obtain copies of all title exceptions Request satisfaction amounts from any mortgages, liens, or encumbrances to be paid at closing

Preclosing procedures Review survey Verify that all sale obligations have been met by both purchaser and seller Verify that all mortgage loan commitment requirements have been satisfied

Document preparation Preparation of all purchase and sale documents Preparation of all loan documents Closing Inform all parties of the date, time, and place of closing Inform purchaser of proper amount of proceeds needed for closing Instruct purchaser to bring good funds

Verify that lender has deposited loan proceeds with firm Reserve conference room Prepare closing packet of documents for purchaser and seller

Disbursing, recording, and transmittal of final documents Transmit deed, mortgage, and other documents to courthouse for recording Transmit money necessary to pay prior liens, mortgages, and encumbrances Prepare final package for purchaser and seller Prepare final loan package for lender

Final closeout Obtain all recorded deeds, mortgages, and other documents from courthouse Obtain all satisfactions and cancellations for prior mortgages, liens, and encumbrances Order final title examination Verify proper recording and indexing of deed, mortgage, and other recorded documents

Final closeout Obtain and review title insurance policy Transmit recorded deed and title insurance policy to purchaser Transmit recorded mortgage and other loan documents and title insurance policy to lender Do final review of file to verify that all closing procedures have been completed Close file and send to storage

Closing and short sale In a short sale purchase, the price for the property is not adequate to pay the mortgage indebtedness on the property and the closing costs

Short sale letter Lender approves the sale and sets forth conditions for satisfaction of its mortgage May require receipt of all net sales proceeds May require minimum net sales proceeds Will contain a list of items that can be paid or deducted from gross sale proceeds to arrive at net sales proceeds

New methods of closing Virtual closing Home visit

Use of Determine whether is an appropriate method of delivery Be careful of what is said in an Due to discovery rules Be aware of the tone of an Consider the proper audience for an

Use of Paralegal should always keep in mind attorney–client privilege Use “PRIVILEGED and CONFIDENTIAL” notation at the bottom of an

Technology for Document Production
Paralegals must be proficient in computer skills Current automated document preparation systems include Fill-in-the-blank Search-for-the-code document systems Intelligent document assembly systems

Residential closings use standard Fannie Mae (FNMA) forms and an automated database Document assembly software enables lawyers and paralegals to develop their own set of standard forms

Hardware Scanner Online real estate closings Enable parties to communicate with one another Helpful when numerous parties from various geographical areas are involved in the closing

Ethics: Conflicts of Interest
Attorneys cannot represent a client where an attorney's own interest might impair his or her independent professional judgment Cannot represent a client in which the attorney has a financial interest or represent two clients in the same transaction Early disclosure helps resolve conflicts of interest problems

Summary Real estate closing Timeline
Main fee-generating transaction for most real estate attorneys Timeline File creation Information gathering Document preparation

Summary Timeline Closing
Disbursement, recording, and transmittal of closing package Final closeout

Chapter 14 Real Estate Closings.

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Chapter 14 Real Estate Closings.

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